Perpetual Futures Dominate Bitcoin and Ether Markets, with a Surprising SpaceX Use Case

The process of setting crypto prices has evolved beyond traditional spot trading, with perpetual futures contracts now playing a dominant role in determining the value of bitcoin, ether, and other cryptocurrencies. These contracts, also known as perpetual swaps or 'perps,' are leverage-friendly and have no expiration date, allowing traders to hold them indefinitely by paying a funding rate that varies daily. As a result, perpetual futures now account for approximately 93% of all crypto futures volume, with daily perp volume often surpassing the underlying spot market. Research has shown that derivatives markets, particularly perpetual swaps on unregulated venues, are the primary source of price discovery for bitcoin, with regulated futures and US spot exchanges reacting to these moves rather than leading them. A study published in the Journal of Financial Markets found that perpetual swaps were the strongest instruments for bitcoin price discovery, while other work has identified Binance's perpetual market as the primary source of price formation across the fragmented crypto landscape. The evidence suggests that the derivatives market is increasingly where price gets discovered, with spot markets following. This phenomenon was recently illustrated by the SpaceX initial public offering (IPO), where perpetual futures contracts accurately predicted the company's valuation before its listing on the Nasdaq. Traders on platforms like Binance, Coinbase, and Hyperliquid were able to buy and sell exposure to SpaceX through pre-IPO perpetual futures, which ultimately proved to be a more accurate indicator of the company's valuation than the IPO price set by underwriters. The success of perpetual futures in predicting the SpaceX IPO price highlights their ability to price demand, but also their limitations in accounting for supply. As the crypto market continues to evolve, it is likely that perpetual futures will remain a key driver of price discovery, with spot markets playing a secondary role.